BRC Group Holdings, Inc. Q1 FY2024 earnings call

Operating Performance: Generated $66 million of operating adjusted EBITDA in Q1 2024 vs. $88 million in Q1 2023; Advisory Services had a record Q1; Wealth Management operating margins improved. Investments: Monetized investments, repaid debt, and invested in new opportunities like Nogin; first quarter results included $59 million of investment-related losses (primarily unrealized) and incremental costs from late 10-K filing, internal review, and investigation. Dividend: Declared a dividend of $0.50 per common share, to be paid on or about June 11 to shareholders of record as of May 27. Balance Sheet: As of March 31, 2024, had $191 million in unrestricted cash and cash equivalents, $943 million in net securities and other investments owned, $452 million in loans receivable at fair value; total cash and investments balance ~$1.6 billion; redeemed ~$115 million of Riley old senior notes, with remaining $25 million to be redeemed on May 31, 2024.

Advisory Services: Had a record Q1, generating over $100 million in operating revenues and over $18 million of operating EBITDA during the quarter; revenue increased from ~$76 million over 3 years ago to over $100 million annualized. Wealth Management: Revenues increased to $52 million in Q1 2024, surpassing prior revenues year-over-year and sequentially; assets under management totaled $25.8 billion at March 31, 2024; operating margins continued to improve. Auction and Liquidation: Contributed revenues of $5.8 million and operating income of $2 million; engaged in several ongoing projects, with returning clients driving most revenue opportunities. Advisory Services (Appraisal and Consulting): Experienced a record first quarter, contributing to a 40% increase in segment revenues to $35 million and a 62% increase in segment operating income to $6.1 million compared to same period last year. Communications: Generated revenues of $82 million and operating income of $8 million. Consumer Products: Segment loss of $3 million due to continued softness in global PC and laptop sales; Targus working through macro headwinds but well positioned for market normalization. Capital Markets: Overall segment revenue decreased due to unrealized investment losses, but securities benefited from steady deal-making environment, generating more fee income than same period last year.

Confident in the long-term horizon of investments despite quarterly volatility; expect to exit 2024 with ample liquidity to capitalize on opportunities; dividend of $0.50 per share declared; anticipate continued improvement in Wealth Management operating margins and Targus being well positioned for PC market normalization.

Investment Volatility: Portfolio marks fluctuate quarter-to-quarter due to nature of investments, creating volatility in periodic results. Macro Headwinds: Targus facing headwinds from global PC market; Consumer Products segment affected by softness in global PC and laptop sales. Complex Business Structure: Unique business model combining operating businesses and investment book creates evaluation challenges for investors. Debt Redemption: Need to manage debt redemption schedules, including redeeming remaining Riley old senior notes.

Q: On Consumer Products, delta in revenue between goods sold and Consumer Products revenue?

A: Need to get back, mixture of different things including retail liquidation.

Q: Color on Great American transaction and noncore divestitures?

A: In the middle of considering, excited about asset but recognizing potential to sell for value creation, timing likely earlier Q3.

Q: Update on Franchise Group and Targus?

A: Management team doing well, Targus tied to hardware macro, expected to turn as cycle normalizes.

Q: Learnings from unusual period impacting operations or capital allocation?

A: Optimism about financial services segment, continued focus on finding undervalued assets, but complexity of business creates dynamics.

Q: Guide for businesses and dividend coverage?

A: Trailing month operating EBITDA ~$340 million, need ~$60 million to cover dividend and interest, confident in recurring businesses supporting expenses.